Inconvenient Facts and the FCC’s Flawed Spectrum Screen

Today, the FCC approved SoftBank’s acquisition of Sprint and Sprint’s acquisition of the remainder of Clearwire. After it takes over Sprint/Clearwire, SoftBank has asserted that it will provide Sprint with an infusion of capital and expertise that will be used to deploy Clearwire’s 2.5 GHz spectrum – the key asset in play in this transaction – more effectively. Softbank and Sprint have also alleged that the 2.5 GHz spectrum (the same band Softbank uses for its LTE network in Japan) will be made even more valuable through its combination with Sprint’s 1.9 GHz and 800 MHz spectrum holdings.

In fact, Clearwire’s 2.5 GHz spectrum portfolio is so valuable that in recent weeks it set off a bidding war. In late May, Dish Network raised its bid for Clearwire to $4.40/share, representing a 29 percent premium over Sprint’s revised offer of $3.40, causing Sprint to revise its bid once again to $5/share. This makes clear how valuable – and pivotal to the deal – the 2.5 GHz spectrum portfolio really was.

This value was also readily recognized by analysts commenting on the deal. Baird Equity Research noted that gaining full access to Clearwire’s almost 140 MHz of nationwide spectrum provides significant bandwidth opportunities and solves Sprint’s spectrum shortage. And Clearwire itself has long publicly touted the value of its approximately 140 MHz of spectrum on average across its national footprint and up to 160 MHz of spectrum on average in the 100 largest markets.

Yet, in reviewing the transaction, the FCC ignored all this and concluded that no adjustment to the spectrum screen was needed, even though the FCC today counts only 55.5 MHz of the 2.5 GHz spectrum in the screen, a tool that is designed to consider all spectrum available for wireless use. The FCC reached this conclusion despite the fact that it is directly contrary to the FCC’s own assertions, in both its Wireless Competition Reports and in a February 2013 FCC White Paper, that all 194 MHz of 2.5 GHz spectrum is available for mobile wireless use. Indeed, the FCC has acknowledged in those reports that Clearwire is currently using this spectrum to provide mobile broadband services.

This refusal to acknowledge and account for all available BRS/EBS spectrum is neither rational nor defensible. Not only is it inconsistent with the FCC’s own findings elsewhere, but it is directly contrary to the manner in which the FCC treated the neighboring WCS band at 2.3 GHz. When AT&T acquired those licenses, the FCC found that the spectrum was usable for mobile wireless services and promptly adjusted the screen. Yet here, when Softbank acquires far more substantial spectrum rights in the 2.5 GHz band, the FCC ignores the ground truth and refuses to make the appropriate screen adjustment with little justification.

To be clear, AT&T took no position on the underlying transaction. Our argument is solely with the FCC’s determination to avoid the inconvenient facts about its current spectrum screen. The screen framework has been and can continue to be an effective tool for assessing competitive impact, but until that framework is updated by the FCC to reflect ALL spectrum that is available and usable – and in this case currently being used – for mobile wireless services, the framework is a significantly flawed tool that seeks to advantage some competitors to the disadvantage of others.

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Joan, is it an “inconvenient fact” to disclose that the reason the FCC considers only 55.5 MHz of BRS 2600 MHz spectrum against the screen is that exactly 55.5 MHz is contiguous? The other 18 MHz of BRS is fragmented and/or adjacent to high power video operations — the latter, something that AT&T itself has vexed over with its opposition to Lower 700 MHz band 12/17 interoperability.

Is it also an “inconvenient fact” to broach the subject that EBS 2600 MHz spectrum is entirely leased, not licensed to CMRS operators? Hence, EBS is exposed to the vagaries of the actual licensees — the educational institutions — not to mention, subject to educational use obligations.

Finally, is it an “inconvenient fact” to reveal that AT&T holds 30 MHz of WCS 2300 MHz spectrum in many markets, but only 20 MHz of that counts toward the spectrum screen? That remaining 10 MHz of WCS does not count toward the screen because it is now there largely for the protection of SDARS operations.

So, maybe, the FCC is justified in counting only 55.5 MHz of BRS 2600 MHz spectrum toward the screen — though, that may be an “inconvenient fact” for AT&T.

Joan, you know that in oder to be fair to small business that AT&T should not be allowed to buy more than 10 MHz of spectrum in the incentive auctions. You guys already own your fair share of lower band spectrum.